Working Paper No. 02
The Science of
Success:
Investigating an
innovative
methodology
charting the steps to
Start-Up success
Panayiotis H. Ketikidis, Aristea I. Ladas,
Fotis Gonidis, Andreas Baresel-Bofinger,
Katerina Aichinger, Olga Athanasiadou,
Maria Giorgalli, Rafaella Paradeisi, Arvesa
Studenica, Kyriaki M. Tsigarida
The Altuntas Start- up Compass Theory
The science of success:
Investigating an
innovative methodology
charting the steps to
start-up success
Panayiotis H. Ketikidis1,2, Aristea Ladas1,2, Fotis Gonidis2, Andreas
Baresel-Bofinger2, Katerina Aichinger, Olga Athanasiadou, Maria
Giorgalli, Rafaella Paradeisi, Arvesa Studenica, Kyriaki M. Tsigarida
1
2
South East European Research Centre (SEERC)
International Faculty of the University of Sheffield, CITY College
1
The South-East European Research Centre (SEERC) is an overseas research centre of
the University of Sheffield, established as a non-profit legal entity in Thessaloniki, Greece. The
centre was founded by The University's International Faculty, CITY College in 2004. It brings
together a core group of academics from the International Faculty and the Sheffield based
Faculties of the University, a range of PhD and Post-Doctoral researchers and visiting
academics, to create a multidisciplinary network of scientists specialising in South East
Europe.
The SEE-VIEW Working Papers Series was launched in 2017 with the purpose of disseminating
research and policy debate on subjects related to interdisciplinary issues in the Social
Sciences and beyond, focusing on the region of South-East Europe. The working papers
published in the Series constitute work in progress circulated to stimulate discussion and
critical comments.
ISBN: 987-960-9416-13-9
ISSN: 2585-2116
All rights reserved. This book, or parts thereof, may not be reproduced in any form or any
means, without the written permission from the Publisher.
The right of reproduction is not violated when the source is properly mentioned.
All views expressed in this paper are those of the authors and do not necessarily represent
the views of the Publisher.
Date of Publication: April 2017
Publisher: South East European Research Centre (SEERC)
2
Contents
Executive Summary ............................................................................................................... 4
Introduction............................................................................................................................ 5
Background............................................................................................................................. 6
Scientific models to measure and increase start-up success ........................................ 10
The Start-up Compass or Altuntas Theory ....................................................................... 13
Methodology ......................................................................................................................... 15
Findings and Analysis ........................................................................................................... 16
Discussion ............................................................................................................................. 26
Conclusion and future work ............................................................................................... 29
References ............................................................................................................................ 31
3
Executive Summary
In an era where the world is experiencing the aftermath of a financial crisis, faced with the
potential of further economic deterioration, entrepreneurship and the creation of small
businesses seem to be vital in developing stronger, more resilient, and more sustainable
economies. For this reason, the success and failure of start-ups is of central interest not only
to relevant stakeholders, like entrepreneurs, investors and governments, but also to
academics of the field of business, entrepreneurship and innovation. Throughout the years,
several theoretical frameworks, either financial or other, have been developed and tested for
their efficacy in predicting company success and failure and some indeed seem to be of great
value. As a result of these efforts, various factors have been suggested to contribute to the
survival or death of a newly developed business. In fact, the variability in these frameworks is
so high that it is difficult, if not impossible, to form a uniform and all-inclusive theory. In light of
this difficulty, we attempted to offer a different approach to the issue of start-up
success/failure. Therefore, in this paper we present the Start-up Compass Theory (SCT),
which involves several stages and steps as follows: Stage (1) Before Starting the Business, also
referred to as Wannapreneurship; Stage (2) Starting Up the Business, involving the steps of
Innovation, Entrepreneurship, Marketing and Sales; (3) Growing the Business, including
Branding, Institutionalization and Franchising and finally (4) Maturing the Business, involving
Leadership and Angel Investment.
As opposed to existing theoretical frameworks, developed by academics, the SCT has the
benefit of being developed by an experienced entrepreneur and businessman. Thus, this
theory has already been “tested” in the real world for its effectiveness in leading a start-up to
success. However it has not been submitted to scientific scrutiny. Given the predictive value of
empirically tested models, we aimed at empirically evaluating the SCT by initially using
interviews that were structured according to the SCT’s elements. Our interviewees were
successful Venture Capital (VC) managers and Business Angels (BAs), approached at the
World Business Angels Investment Forum ‘Access to Finance from Start-up to Scale-up to
Exits’, held in Istanbul on 21 - 23 February 2016, as we considered that such a sample would be
most suitable for offering a well-founded view of the factors that lead to start-up success,
given the participants’ extensive entrepreneurial experience.
According to the results of our interviews, the majority of the factors that are described in the
SCT are also embraced by the interviewees for their value in enhancing or even determining a
young company’s success. However, there are also other factors such as the level of the
product’s innovative nature, the required knowledge of the company’s staff or the location of
the business which are identified as important in the SCT but not equally valued by some of
the participants. Nevertheless, the SCT seems promising both from a scientific and a more
“applied” perspective.
4
Introduction
The financial crisis that broke out in 2007 precipitated by US banks is still ongoing in Europe,
as evident from relevant reports on international financial newspapers (e.g. Financial Times,
2016; The Guardian, 2016; Wall Street Journal, 2016). Among viable solutions proposed to
address the financial crisis and establish a competitive economy, many scholars have
identified entrepreneurship as an important one (Huggins & Williams, 2011). According to the
World Bank, the backbone of entrepreneurship is start-ups (Nguru, 2016), which in turn
contribute to economic growth, as well as to job creation and poverty reduction (Hecht,
2014). In addition, start-ups are largely considered as a major force of innovation (Freeman &
Engel, 2007; Weiblen & Chesbrough, 2015), which also leads to economic development (Eesley
& Miler, 2012; Rosenberg, 2004). Thus, significant policies have been put forward in order to
create an entrepreneurial ecosystem, including important stakeholders such as organizations
[incubators/accelerators,
companies,
banks,
Business
Angels],
institutions
[universities/research centres, other governmental agencies, financial bodies] (OECD, 2013) as
well as the wider university-industry technology which further supports and encourages such
entrepreneurial activity (Peters, Rice & Sundararajan, 2004; Siegel et al., 2003). However,
relevant studies show that the success rate of start-ups is less than 25% (Steve Blank, 2013;
Rose, Kumar & Yen, 2003), partially attributed to the fact that entrepreneurs do not follow an
established method during the product development process (Steve Blank, 2013). Therefore,
given the vital role of start-ups, it is of major importance to formulate methods and wellestablished strategies, which can be adopted by young entrepreneurs, to enable them to
increase the success rate of their ventures.
Among other implications, the significantly high percentage of failed start-ups has a profound
impact on the direct investors and stakeholders of the start-ups, namely the Business Angels
(BAs) and the Venture Capitalists (VCs). Both BAs and VCs are indispensable parts of the
entrepreneurial ecosystem that ensure the continuous funding of the start-ups and thus
guarantee their viability. Those investors undertake a high risk by opting for an extraordinary
return in case the start-up becomes successful and thus profitable. However, in the case that
the start-up fails the entire invested capital may be lost.
To this end, this paper reports on an ongoing effort to identify and evaluate existing methods,
which have the potential to increase the success chances of a start-up. In particular, the scope
of this research is three-fold: (a) to review earlier relevant proposed models and frameworks,
(b) to present a new method, the Start-up Compass Theory (SCT), which comprises an
empirical approach formulated by an experienced entrepreneur, and finally (c) to evaluate the
SCT by conducting an interview-based study, involving Venture Capital (VC) managers and
Business Angels (BAs) who play an active role in the field of entrepreneurship.
5
The novel aspect of this research is that, to our knowledge, this is the first time that an
empirical method, which aims to increase the success chances of a start-up and has been
already successfully applied in practice, is validated through a scrutinizing process involving
active experienced and successful practitioners in the field. The BAs and VCs, interviewed
during the World Business Angel Forum (WBAF) 2016, have extensive experience in start-up
funding worldwide and at least few successful exits. It is worth noting that WBAF is the ideal
platform to make such interviews since it is one of the world’s leading organisation for startup and scale-up investments.
Background
Impact of entrepreneurship on economic development
Caree and Thurik (2003) have put forward the notion that economic growth, the creation of
new jobs and competition benefit from intense entrepreneurial activity. In support of this
notion, Acs and Armington (2003) have provided empirical evidence supporting that higher
growth rates are indeed achieved in regions with increased entrepreneurial activity. Similarly,
Audretsch and Keilbach (2004) have demonstrated that on a regional level, entrepreneurship
is positively related to growth in labour productivity. Additionally, Reynolds (1999) has
provided evidence of the positive relationship between growth rates and entrepreneurship in
the USA. On the other hand, Audretsch and Fritsch (1996) have found evidence supporting the
opposite in Germany during the 1980s: Higher start-up rates were negatively related to
growth rates and this finding was also repeated by Fritsch (1997). However, due to current
processes of convergence between the US and Germany, it seems that nowadays
entrepreneurship tends to become a major source of growth for both countries (Audretsch
and Fritsch, 2002).
The role of start-ups in the economic development
Especially when focusing on small businesses, they appear to be a major source of
entrepreneurship, compared to larger businesses; this was demonstrated in a study involving
a respectable sample of patent businesses (i.e. 1293 technology firms), supporting that “small
firms in emerging industries are one of the greatest engines of American economic growth”
(Breitzman & Hicks, 2008, page i). According to Blank and Dorf (2012, p.xvii),
“A start-up is a temporary organization in search of a scalable,
repeatable, profitable business model’”.
6
In other words, a start-up is a temporary organization aiming to become a successful
company. Presumably, a successful start-up would be one that actually manages to grow into a
company which creates sustainable profit, and this is the definition of start-up success we will
embrace for the purposes of the current study. Scholars and businessmen argue that today’s
economy should be based on entrepreneurship and innovation (Fritsch & Mueller 2004;
Huggins & Williams, 2009; Porter, 2003; Reynolds et al., 2002), and hence there is a great need
for the creation of new businesses. However, the success rate of start-ups is quite low. As
Steve Blank (2013) notes, about 75% of start-ups fail. This is also supported by Rose, Kumar
and Yen (2006), reporting that only about 10% of start-ups survive beyond 10 years. Coming to
a similar conclusion although deriving from slightly different numbers, an American Small
Business Administration’s report of 2014 states that only about one-third of start-ups survive
more than ten years in the market. Also, according to the US Census Bureau, the number of
businesses in the US that die annually (i.e. 470.000) is larger than the number of businesses
that are founded (i.e. 400.000) (Meszaros, 2016). In addition, Blank (2013) reports on a recent
study by Shikhar Ghosh from the Harvard Business School which demonstrates that about
75% of all US start-ups fail.
Therefore, it becomes evident that start-up success is a significant issue to investigate for
three reasons: Firstly, because start-ups are fundamental for economic growth in today’s
economies; Secondly, because the success rates of start-ups is considerable low and thirdly,
because other major stakeholders of the entrepreneurial ecosystem, namely BAs and VCs, and
their funding decisions are directly influenced by start-up success rates.
Success factors for start-ups
Given then the importance of this current state of affairs, several factors influencing the
desired success of a new venture have long been recorded in the literature. These could be
divided in individual and more generic ones (see Table 1). For example, on an individual level,
the entrepreneur’s personal characteristics, together with motivation, risk-taking behaviour
(Carayannis et al., 2006; Linton, 2006), as well as the level of familiarity with the sector
(Vivarelli, 1991) are considered important factors influencing start-up success. The level of
skills is an additional factor suggested to play a role in the course of a start-up (Cross, 1981).
According to that, people with previous managerial experience (Cross, 1981) and skilled
workers have more possibilities of developing their own business compared to semi-skilled or
un-skilled ones (Lloyd & Mason, 1983). In addition, higher levels of education in combination
with previous managerial experience have also been suggested as factors positively
influencing entrepreneurship (Storey, 1982).
On a broader level, regional innovation networks (Vliamos, Halkos & Tzeremes, 2009) and the
local culture (Carayannis & Campbell, 2009) have been documented as influencing
entrepreneurs’ activity and thus success. In addition, other factors at a macro-level have been
7
suggested to influence entrepreneurial activity, such as the opportunities provided by the
resources available in a given economy, governmental policies regarding entrepreneurship,
number of immigrants and women in the labour market (Audretsch et al., 2002). Moreover,
Verbovskii, Poletaev and Chayka (2014) report that the idea, funding, team and the ground for
development are vital factors for the successful growth of a newly-founded business.
Furthermore, Psaltopoulos, Stathopoulou and Skoura (2005) state that the location of the
market in which the start-up is developed, as well as entrepreneurial risk-perception affect
the investment inflows of a start-up, which further impact its success rate.
In addition, Maxwell, Jeffrey & Lévesque (2011) look at the investors’ criteria, and specifically
the criteria that Business Angels use to fund a start-up, and subsequently identify eight factors
that play a critical role in deciding whether a start-up will be funded or not. These criteria are
the following: product adoption (i.e. how attractive the product is to potential customers),
product status (i.e. measures the financial and technological risk in releasing the product into
the market), ability to protect the product/brand (i.e. can it be legally protected from
copies?), customer engagement (i.e. whether potential customers have been engaged in the
development of the product, so that the product addresses actual customer needs), route to
market (i.e. the route that the product needs to follow to reach the market), market potential
(i.e. is a large market available for this product or does the product address a market with a
large potential for growth?), relevant experience (i.e. of the entrepreneur) and financial
model (i.e. the ability of the venture to produce profit and how realistic that is).
Table 1.
Description of factors that influence start-up success/ entrepreneurship in more
general, according to the literature
At a micro level (individual characteristics)
(Carayannis, Popescu, Sipp &
Stewart, 2006; Linton, 2006):
One’s personal characteristics, also involving motivation
and risk-taking behaviour
(Vivarelli, 1991):
The level of familiarity with the sector
(Rauch & Frese, 2000):
Risk-taking behaviour, the need for achievement and locus
of control
(Cross, 1981):
Level of skills
experience)
(Lloyd & Mason, 1983):
Level of skills (skilled workers)
(Storey, 1982):
Higher level of education in combination to previous
managerial experience
(Rose, Kumar & Yen, 2006):
Entrepreneur’s education level, as well as his/her working
experience and familial experience with managing a
business
(people
with
previous
managerial
8
At a macro level (broader characteristics)
Direct influence
(Vliamos, Halkos & Tzeremes,
2009):
Regional innovation networks
(Carayannis & Campbell, 2009):
Local culture
(Audretsch, Thurik, Verheul &
Wennekers, 2002):
Other regional characteristics
(Verbovskii, Poletaev and Chayka,
2014):
The idea, the funding, the team and the ground for
development
Indirect influence
(Psaltopoulos, Stathopoulou and
Skoura,2005):
Location of the market where the start-up is developed
and entrepreneurial risk-perception affect the
investment inflows of a start-up, which in turn will affect
its success rate given that if such inflows are small, the
business cannot develop further
Criteria used by business angels to take funding decisions, either direct or indirect
(Maxwell, Jeffrey & Lévesque,
2011):
Product adoption (i.e. how attractive the product is to
potential customers), product status (i.e. measures the
financial and technological risk in releasing the product
in the market), ability to protect the product/brand (i.e.
can it be legally protected from copies?), customer
engagement (i.e. whether potential customers have
been engaged in the development of the product, so
that the product addresses actual customer needs),
route to market (i.e. the route that the product needs
to follow to reach the market), market potential (i.e. is a
large market available for this product or does the
product address a rather small market but with a large
potential for growth?), relevant experience (i.e. of the
entrepreneur) and financial model (i.e. the ability of the
venture to produce profit and how realistic that is).
As evident, numerous factors on both a macro and a micro level have been suggested to
influence start-up success. These factors have been incorporated to wider methods and
strategies that attempt to increase the success chances of start-ups. In the next section we
bring together and evaluate such methods which contribute to the success of start-ups.
9
Scientific models to measure and increase start-up
success
As described above, there are numerous factors/variables that have the potential to improve
the chances of success of a newly-developed business. This abundance in variables (see Table
1) and their often complex (e.g. variables that may indirectly influence start-up success, thus
function only as mediators in the factors-success relationship) or even changing role in the
failure or success of a newly developed business may give rise to confusion for anyone wishing
to study this field or acquire useful knowledge to apply in making a start-up succeed. Thus, in
the present paper we focus on existing coherent strategies rather than individual factors or a
combination of these.
Several theories aiming to predict a company’s failure have been developed throughout the
years (Carter & Van Auken, 2006; Cooper, Gascon, & Woo, 1991; Pompe & Bilderbeek, 2005;
Reynolds, 1987; Reynolds & Miller, 1989; van Gelder et al., 2007; Westhead, Wright, &
Ucbasaran, 2001). These theories involve factors that the authors of each study considered
significant in influencing a company’s success or failure. In particular, the study by Carter and
van Auken (2006) developed a primarily financial model, tested in the form of a questionnaire
and disseminated in a sample of both bankrupt and non-bankrupt companies. Importantly,
they included age of the company as one of the main factors influencing failure. Similarly,
Reynolds (1987) as well as Reynolds and Miller (1989), have used the age of the company as
one of the two bases for the development of their model, finding that company age is a very
important predictor of survival. However, with respect to our study, the company’s age is not
a factor that could provide any guidance for a firm at a starting phase, with an age of close to
zero. In a similar vein, Pompe and Bilderbeek (2005) developed a financial model (i.e.
including several ratios) in addition to the age of the firm as predictive factors of company
failure. However, ratio prediction models of company failure impose certain limitations.
According to Dechow et al. (2013), such financial models often misclassify many firms in the
“bankrupt” category. As an example, Dechow et al. (2013) report that in a study by Beaver,
McNichols and Rhie (2005) the vast majority (i.e. 95%) of the companies that were ranked at
the top 30% of the ranked probability (including 86% of the bankrupt sample) as –futurebankrupt, actually did not go bankrupt. An additional limitation of ratio models aiming to
predict company failure is that for these models to be accurate, the financial data they are
based upon must be reliable (Louangrath, 2015). De Clarens (2015) claims that since such
financial ratio models have predictive value only if the external conditions of the company
remain unchanged, one should not trust them if they involve data of more than 15 months.
Finally, several authors (e.g. Cooper, Gascon & Woo, 1991; Reynolds & Miller, 1989; Reynolds,
1987) suggest that financial models are not appropriate at all for studies involving small
businesses.
10
In a different vein, Cooper, Gimeno-Gascon and Woo (1991) used a resources framework to
predict start-up survival and growth. Specifically, it includes variables such as the initial capital
invested in the company, the educational level and previous employment of the entrepreneur,
demographic characteristics of the entrepreneur and relevant experience with managing a
company. However, it mostly focuses on the characteristics of the entrepreneur and hence
neglects other aspects that could play an important role in the success of a start-up, such as
the target market, strategic issues like competitive companies and poor economy, federal
regulations and capital availability (Carter & van Auken, 2006). In addition, this model
perceives growth as a 50% increase in employment within the company. However we believe
that this is an indirect measure of venture success, since growth in employment could also
imply that the entrepreneurs invested in more employees merely because they believed this
would benefit the company and not because of the increased demand for personnel caused
by business growth. Similarly, the factors that van Gelder et al. (2007) believe to influence
failure or success of a company are related to the individual characteristics of the business
owner (i.e. the strategies and the planning the owner used, goal specificity and goal difficulty,
the education and the experience of the business owner). Although they did find that most of
these factors were statistically relevant to failure or success of the business, there is a serious
limitation inherent in this model, mainly that it leaves out factors, which are related to the
macro-functioning level of a company and which may play a significant role in its success.
Moreover, a study by Westhead, Wright and Ucbasaran (2001) investigated whether the
companies of interest are more likely to survive compared to other kind of companies.
However, this study focused on exporting companies, and hence measured characteristics
applicable specifically to these companies.
Similarly, we believe that the framework
developed by Gartner, Starr and Bhat (1998) is not suitable for our goal, as it is considerably
outdated. We believe that since the business world is a dynamically changing environment, we
need to be informed by recent data in order to have a level of certainty regarding their
ecological validity. In addition, older studies may not include factors that have emerged at a
later point in time.
Lussier developed a model, initially published in 1996, which involves specific factors which are
tested, such as planning, advisors, economic timing, record keeping and financial control, as
well as product/service timing (Table 2). In this study, the sample consisted of 48 successful
and failed firms. According to the results, the model had an accuracy of 80% in predicting
which firms succeeded and which did not. Also, it predicted 67% of the variance in the
success or failure of a retail company.
11
Table 2. Explanation of success versus failure variables (adopted from Lussier &
Halabi, 2010 by permission of Prof. Lussier)
Capital (capt).
Businesses that start undercapitalized have a greater chance of
failure than firms that start with adequate capital.
Record Keeping and
Financial Control
(rkfc).
Businesses that do not keep updated and accurate records and
do not use adequate financial controls have a greater chance of
failure than firms that do.
Industry Experience
(inex).
Businesses managed by people without prior industry experience
have a greater chance of failure than firms managed by people
with prior industry experience.
Management
Experience (maex).
Businesses managed by people without prior management
experience have a greater chance of failure than firms that are
managed by people with prior management experience.
Planning (plan).
Businesses that do not develop specific business plans have a
greater chance of failure than firms that do.
Professional Advisors
(prad).
Businesses that do not use professional advisors have a greater
chance of failure than firms using professional advisors. A more
recent source of professional advisors are venture capitalist.
Education (educ).
People without any college education who start a business have a
greater chance of failing than people with one or more years of
college
education.
Staffing (staff).
Businesses that cannot attract and retain quality employees have
a greater chance of failure than firms that can.
Product/Service Timing
(psti).
Businesses that select products/services that are too new or too
old have a greater chance of failure than firms that select
products/services that are in the growth stage.
Economic Timing (ecti).
Businesses that start during a recession have a greater chance to
fail than firms that start during expansion periods.
Age (age).
Younger people who start a business have a greater chance to fail
than older people starting a business.
Partners (part).
A business started by one person has a greater chance of failure
than a firm started by more than one person.
Parents (pent).
Business owners whose parents did not own a business have a
greater chance of failure than owners whose parents did own a
business.
Minority (mior).
Minorities have a greater chance of failure than nonminorities.
Marketing (mrkt).
Business owners without marketing skills have a greater chance
of failure than owners with marketing skills.
Throughout the years, and in contrast to the aforementioned frameworks, the Lussier 15variable business success versus failure prediction model has been tested with different
businesses, in different countries, so that evidence on its generalizability can be provided. As
12
shown, the predictive power of the full model, which seems to be substantial in areas such as
South and North America, diminishes when tested in completely different cultural contexts
such as Croatia where a reduced model seems more suitable (Lussier & Halabi, 2010). Thus,
its applicability is rather confined to America. Secondly, as commented by the authors
themselves, given the rather low amount of explained variability in company success and
failure from both the overall framework and its variables individually, other factors not
included in this formula seem to play an important role in venture success; for example,
Lussier and Halabi (2010) suggest that use of IT and the Internet on behalf of the company
could inform such a model in future studies.
This section evaluated several methods and models, which attempted to either increase the
success rate or predict the success or failure of newly developed businesses. The common
goal of all these models/theories is to help entrepreneurs understand the mechanisms that
drive venture success and failure as well as to reduce risks and thus increase the success
chances of their companies.
In the next section we focus on the Start-up Compass Theory, a theory which puts forward a
systematic approach that a young entrepreneur may follow in order to transform a start-up to
a mature company. Unlike the existing methods and prediction models reviewed in this
section, the Start-up Compass Theory constitutes an empirical approach, which has been
successfully put in practice by an entrepreneur but has not yet been scientifically tested for
its validity.
The Start-up Compass or Altuntas Theory
The Start-up Compass Theory, SCT (Altuntas, 2014), or the Altuntas Theory as it is called by
academics in the field, was formulated by Baybars Altuntas. This theory has been developed
on the basis of Altuntas’ extensive experience in creating a start-up and maturing it up to the
point of making it a successful, profitable business. At its core, it proposes four stages and
nine steps (see Table 3), which in essence describe the entrepreneurship experience of
Baybars Altuntas (Altuntas, 2014).
The stages and steps of the SCT are as follows: (1) Before Starting the Business, also referred
to as Wannapreneurship; (2) Starting Up the Business, involving Innovation, Entrepreneurship,
Marketing and Sales; (3) Growing the Business, including Branding, Institutionalization and
Franchising and finally (4) Maturing the Business, involving Leadership and Angel Investment.
Stage 1: Before starting the business:
The first stage includes the step of the so-called Wannapreneurship. During this process the
individual generates the relevant business model for his/her idea and explores potential
13
financing sources. As described in the SCT, the ideal model is the one where you “first earn
and then spend” (Altuntas, 2014, page 2), thus generating the idea’s financing source based on
the merits of its own business model.
Table 3. Description of the Start-up Compass Theory by Baybars Altuntas
Stage
Step
A. Before Starting Up the Business
1. Wannapreneurship
B. Starting Up the Business
2. Innovation
3. Entrepreneurship
4. Marketing and Sales
C. Growing the Business
5. Branding
6. Institutionalization
7. Franchising
D. Maturing the Business
8. Leadership
9. Angel Investment
Stage 2: Starting up the business:
The second stage involves three steps, namely Innovation, Entrepreneurship and Marketing
and Sales. The first step examines the innovative aspect of the product/service that the new
business delivers. Entrepreneurship regards the characteristics that according to Altuntas are
essential for boosting a newly developed business, such as the office location, the name of the
company, and the pricing. Marketing and Sales capitalize on the level of personal involvement
of the entrepreneur in the marketing of the product/service as well as other aspects of the
marketing process.
Stage 3: Growing the business:
This stage includes Branding, Institutionalization and Franchising. Branding considers advice
regarding the branding process and its importance, while Institutionalization touches upon
the management of a business that has grown considerably. Franchising reflects on how to
successfully plan the franchising process.
Stage 4: Maturing the business:
The final stage involves the step of Leadership, namely how to effectively lead a company, and
Angel Investment, which examines the reasons for becoming an angel investor and the
qualities required.
14
The SCT entails the relevant phases of developing a new business and growing it from a startup to a large company with many franchisees. At the same time it describes steps to be taken
by a new entrepreneur to grow into an Angel Investor. In the next section we attempt to
evaluate the SCT and provide hard data on its possible effectiveness.
Methodology
In evaluating the SCT, we used two approaches: a quantitative and a qualitative one, one
complementing the other, as emphasized by the work of Onwuegbuzie & Leech (2005). More
specifically, we designed a questionnaire based on the SCT and distributed it to the relevant
sample (quantitative method). However, the latter is beyond the scope of the present paper
as it is still ongoing research. Currently, we focus on presenting the data that emerged from
the qualitative method, namely the semi-structured interviews with questions formed based
on the SCT. We interviewed world-class successful Business Angels and Venture Capitalists,
aiming to investigate the extent to which they have followed the SCT or they believe it may
increase the success chances of a start-up. To our knowledge, this is the first time in this field
that a method which has been already proven successful in the business world is put under
scientific scrutiny. In the literature, relevant models that accurately predict the success rates
of new businesses, presented in previous paragraphs herein have been either created –and
tested- by academics of the field of business, and hence lack the component of hands-on
experience, or by individuals with experience in creating start-ups, and thus have not been
evaluated scientifically.
We interviewed nine (9) participants, who attended the World Business Angels Investment
Forum, ‘Access to Finance from Start-up to Scale-up to Exits’, in Istanbul on 21 - 23 February
2016, where the interviews also took place. All the participants were experienced Business
Angels and VCs, with more than 10 years of experience in the field of entrepreneurship and at
least 3 successful exits. Their entrepreneurial activity spans across the globe (USA, Europe,
Middle East, Asia, Africa) and their investment areas focus particularly on the High Tech
industry and Information Technology. We particularly chose participants with these
characteristics, as we believed that their long experience in successful entrepreneurship
renders them most suitable for the purpose of our study, namely the evaluation of the SCT.
We approached the participants by email explaining the background and purpose of the study
to them and setting the date and time for the interview. The participants were interviewed
individually face to face, one-to-one, in a quiet room at the World Business Angels Investment
Forum. Each interview lasted approximately 30 minutes and was conducted in the English
language. The interviewers were two members of our research team, who were highly
knowledgeable in the SCT and were carefully trained in the interview process, to avoid any
potential bias towards the interviewees. After informing the participants as to their rights to
15
anonymity and withdrawal, they signed an informed consent form and the interview process
started. All interviews were recorded, with the permission of the participants, to allow further
transcription of the data. The recordings were available to the research team only and will be
destroyed after completion of our research.
The stages and steps identified from the SCT served as the basis for the layout of the nine
semi-structured interviews. We chose this in-depth qualitative method of interviews to allow
us not only to record the benefits and drawbacks of the SCT, but also to understand the
deeper mechanisms of the SCT if possible and essentially gain rich information on the process
of start-up success. Such a method allowed us to reveal and further investigate additional
issues not raised by the interview questions but by the interviewees themselves. We believed
that a qualitative method such as the current one would be most suitable for these purposes
especially in the initial stage of our research. That is, although we designed the interview
questions according to the SCT’s stages (see Table 3), the interviewees were free to express
any additional information that seemed relevant to them. Thus we were able to gain a deeper
insight into the factors that may predict start-up success.
Following Williams, Vorley and Ketikidis (2013), in our analysis of the collected data for the
current paper we investigated not only the predefined topics of the interview schedule but
also the topics that emerged during the interview. To this end, we used the constant
comparative method to analyse the interviews, which allowed us to reformulate an existing
theory (in this case, the SCT) based on the constant comparisons of the emerging themes.
This also allowed us to avoid researcher bias (Hamel, 1993). Additionally, this approach was
considered appropriate for our purposes since it acknowledges that there is no simple
answer and that individual differences are important to consider (Shields, 2007) as appears
to be the case with start-up success that we are investigating. In order to deepen the
understanding of the concepts that emerged, we provide quotes from the data.
Findings and Analysis
The vast majority of the interviewees (i.e. 8 out of 9) believed that the factors that are
important for the success of a start-up are (a) the people working in the business, (b) the
product/service (i.e. its quality, its pricing, its marketing, its innovative features), (c)
marketing of the product/service, (d) the depth of knowledge that the entrepreneur has of
the business field, and (e) the company (i.e. the location of the office, finances, funding,
franchising, branding and management of a business). The SCT’s elements of Leadership and
Angel Investment were also discussed by the participants.
16
The importance of the team
The staff of a company plays an important role in its success. Specifically, these people need
to be fully engaged and dedicated to their work. The value of the team (i.e. the staff of the
company) is underlined by the following statements:
“Without staff you don’t have a business. So that is just to me that simple. The first most
important thing is the customer because they bring the money. Then the proposition.
That’s what the proposition is for. The next important thing is the staff which is the
organization. Those two are more important than the money which is the economics.”
The value of the company’s staff, and particularly the team’s selling skills, is also stressed by
another participant:
“If the entrepreneur is capable of delivering the product, during this execution so you can
have a scientist that is very good at creating a patent or a device…But then, you need
another skill for selling the product, is the team ready to sell the product, is the team good
to sell this product”
Another interviewee also believes in the value of the team (the people as he calls it) as a main
factor contributing to a new business’s success.
"Again it depends on the company, but in more…. and it’s all about people… So, even in a
capital….of manufacturing plans you still need the right management the right people. We
are in a lot of artificial intelligence business but again, you know, it’s knowledge and
people. So, 100%. The entire business depends on the people and their knowledge..."
An additional participant also supports the importance of the people that constitute the team
of a company:
“If, at the early stages of an enterprise when you are starting with 2,3,4,5 individuals, you
cannot afford to lose any opportunity to delay your work ...because of quality of people.
So, that is to be in your concern. If it doesn’t become your concern, it’s something that you
really need to remedy immediately, release three individuals, make sure that your core
team are the best and most capable of delivering on your expectations”
In the SCT, the importance of the team, and specifically the sales team, is clearly stressed
(stage 2, step 4 Marketing and Sales), foregrounding the fact that the marketing tools are
worth nothing if you do not have the correct sales staff. The importance of individual staff
17
members’ skills is also stressed, in the 1st stage, step 3 Entrepreneurship. In general, according
to the SCT, steps 3 and 4, the staff of the company is important and hence need to be fully
trained and closely monitored by the owner.
Regarding the founder of the company, the participants believed that it is important for the
success of the new business that the owner of the company is highly engaged, motivated and
dedicated to his/her work. This passion for the job is stressed in the following statement:
"So, in our case, in our companies, we need those 24/7 time people who can work in this…
… I see colleagues saying, «ok, let me go to my desk and I will call you back», you know,
what desk? I do not have a desk like… you know. Which desk? I do not have a desk. I work
everywhere..."
Another participant also supports that the founder of the company must be passionate:
“A founder has the passion, the idea and also, if something starts failing, the founder
depending on … the founder is up and passionate about their business, you cannot find
that man in a CEO.”
With reference to the SCT, throughout the model the reader can clearly see that passion and
commitment on behalf of the entrepreneur are prerequisites for the start-up to succeed.
The product
According to another interviewee, besides the people, there are other variables that also play
a role: the staff in combination with the quality of the services or the product offered is what
may make the difference between success and failure.
“…many people say that the success of the company is about people, product and
processes. You can have fantastic people but if they do have a very bad product with bad
process then it is not good. Of course people are very, very important, and if you do not
have the right people then you’ll not have a good product and you’ll not have good
processes in place.”
Another interviewee also mentions the importance of the quality of the product delivered and
that when comparing it to the importance of the price, the entrepreneur should not sacrifice
quality for price in order to succeed:
“We don’t attach price to quality. We dissociate that simply because we believe that if you
compete on price for quality then you lose. So you have to compete you know, fix the
18
price, and compete on other things…You make sure that the price is sufficient for
profitability. And that you know you always make a profit, you are not there for charity.
But your focus should always be on value. If people value it then they can pay anything but
if they don’t value it no matter how cheap they don’t care. “
Regarding the Branding, the 5th step of the 3rd stage of the SCT, Altuntas explicitly states that
the quality of the product/service offered is of crucial importance, and especially when one is
at the phase of growing one’s business; in other words, in order to create a successful brand,
it is imperative to value the quality of the product/service delivered.
Regarding the quality of the services and/or product one offers, the interviewees believed that
it is an important factor to consider. Altuntas also paid close attention to the quality of the
product/service, so that his brand was paired with a high quality product/service, as evident
in the SCT (e.g. Stage 3, step 6 Institutionalization). However, one interviewee mentioned that
it depends on the market demands. That is, because the quality of the product elevates
pricing, if the market “asks” for a cheaper product with lower quality, instead of a more
expensive one but with better quality, then that is what the company should offer:
“…if the market wants cheaper price with less quality, we sell cheaper price with less
quality. Of course, we must tell the market what is the quality we are talking about. We
cannot say the market this is really good but in reality is really bad.”
This balance between pricing and quality is also evident in the following:
“…So, pricing...I think, you know, you have to maintain a balance, you don’t want to come
up with some extremely high quality but no one wants to buy it. It has to be balanced. "
According to the SCT, the pricing of the product should match its exact nature and quality.
However, if one is to maintain high product/service quality, as the SCT suggests, then the
price would be equally high and this could become a barrier if the target market cannot afford
such a price.
The product has another important feature that one must take into consideration when
creating a start-up: Its innovative aspects. According to the SCT, described in step 2
(Innovation), a product cannot succeed in a market if it is not innovative or if it does not at
least has an innovative feature. Innovation is considered by most interviewees as an important
aspect of a newly launched product. As one interviewee puts it:
“Innovative product or service is very important, because of the competition. There are so
many products in the market, so your product has to be something innovative.”
19
Additionally, according to another interviewee:
“So, you are small and not innovating. How do you survive? I mean you are in an ocean full
of sharks, but if you are innovating, all you are finding is swimming in a blue ocean all alone
with your new idea. Of course you still have to be very fast because it doesn’t last too long,
any new idea is old at some people. But if you have innovation and speed if you look at the
most fantastic companies of the world they had the combination of innovation and speed.”
In a similar though slightly different vein, another interviewee states that while it is important
for the product of a start-up to be innovative, it is not a prerequisite for its success. On the
other hand, innovation of a product can also have its drawbacks: According to the following
quote, offering a completely innovative product/service does not automatically mean that it
will succeed. It entails the danger of not being accepted by the market due to its highly
innovative nature: The entrepreneur in such a case cannot make any assumptions a priori
regarding the product’s rate of acceptance, since it is introduced in the market for the first
time, thus rendering the market’s reactions to the product unknown.
“It was an aspect that was different because what we did had not been tried before by
anybody so we made a new market. Remembering now I’ve had different… I have not one
product. I’m on my 7th company…To what I’m thinking about, we were making the market,
nobody had ever done it before, nobody even understood what we were trying to do so we
had to find a guinea pig and because it was an area that required government regulation.
We had to convince the people in government to let us try and so on”.
In line with the above argument, another interviewee prefers to offer a less innovative
product, but with a target market “ready” to buy it:
“It is the market. I can find a very innovative product but the clients do not want to buy the
product so what does it matter. So for me it is the clients, it’s the market that gets to say
if it is good or not. I prefer to invest in a non-innovative product but with market, with
clients, with sales, with profits; than to invest on the most innovative product in the planet
that no one buys it”
Marketing
According to one of the interviewees, marketing should not be be considered simply as a tool
to attract customers’ attention but also as a communication channel through which messages
will be exchanged between the marketing team and the customers. That kind of constructive
conversation allows both the start-up’s management team and the customer to receive
20
valuable feedback and information. Such marketing efforts can be carried out through the use
of social networks such as Twitter and Facebook. Additionally, the attendance to networking
events and the personal hosting of such events have been proven to be vital assets to a startup’s success. Finally, the feedback acquired by all of the methods that are mentioned above
should be used in a constructive and positive manner by the business. As an interviewee
quotes:
“Right from the beginning because I don’t see marketing just as convincing people to buy.
Ι see marketing as a conversation between you and your customers. Okay, and the most
important part of marketing is the feedback you get from customers…I have over 4,000
followers on Twitter, I ‘m on Facebook, I ‘m on Instagram, I ‘m on also some media, I
attend network events. You know physically I host some myself. “
Another interviewee believes that the product should be introduced to the market even
before the establishment of the company, so as to ensure the interest of potential clients early
on.
“…They should market the product before they start producing; getting the potential
clients, getting pre-orders, getting orders from the market and understanding what the
market wants. Is not to produce and then let’s see what the market wants”.
The SCT also values the marketing process (step 4). However, it perceives it from a different
viewpoint: The entrepreneur should personally be involved in the marketing process, both the
planning and the marketing activities, and he/she should invest in the suitability and quality of
the marketing products rather than their quantity.
The knowledge
An interviewee expresses his belief that people who are interested in founding a business
need to have at least some technical knowledge and experience around the field they wish to
enter.
"So, in terms of valuing/evaluating the presentation of a company, I have a big team…. I,
personally, ask two things, and look for two things. ….. which is a domain expertise. I go
and ask by detail is not in a macro-level, have you really done it? If not necessarily the
same thing but either your ability expertise or some kind of technology experience, some
kind of experience …….. that is number one."
21
However, the SCT does not put forward explicitly the importance of the team having
particular knowledge in the business field they start up.
The company
As mentioned above, the notion of the company involves the location, the finances, the
funding, the franchising, the branding and the management of a business, all of which are
considered crucial to start-up success.
Regarding the location, most interviewees agree that it depends on the product:
“if it is food, you want to put in a street where there are tons of people passing by. If it’s a
business to business project you don’t need to be in a very good location. Location is
really important for business to consumer project but not so much for business to
business”
Also:
“Office, no. It used to be… Increasingly it’s less relevant. It’s more having the right space.
Location can be important for some things … office is important if it’s important to your
customers….. If the customers want proximity and all of that then yes. But that’s no longer
an office. That’s the store front. “
Yet for another interviewee, location by itself does not matter in regard to the success of a
start-up. Instead, it is the availability of the company that matters, as also described by the
SCT:
“I mean office location; we have never seen that to be measured as contribution in
success. So I guess a simple answer is that I haven’t seen that. I guess just being available
to customers is the most important. Where you are situated hasn’t mean relatively
important.”
According to the SCT, the location of the company, whether that is the office of the company
or the retail shop, plays an important role and the entrepreneur needs to consider it before
starting the business (stage 2, step 3 Entrepreneurship).
Regarding the funding, some interviewees believe that using idle capacity is a very good
strategy for a start-up to evolve.
“..for instance when I have an entrepreneur wants to do a prototype and asks twenty
thousand Euros or twenty thousand dollars I tell the entrepreneur: -Hey, let’s see which
22
factories have the machines that you need and you work on the weekends. So instead
of…okay, it takes two months or three months but you go there during weekends because
the factory is not working and you can use the machines. So I call the owner, the business
man and say: -Hey can you allow this entrepreneur to use your machines for this ……….”.
An additional interviewee further supports the value of using idle capacity when starting a
business:
“One of our assessments of how successful the idea is, is how capable you are of utilizing
idle recourses.”
Using idle capacity is clearly evident and highly recommended in the SCT (stage 1, step 1).
Specifically, Altuntas highlights the importance of this skill of the entrepreneur:
“Converting idle capacity to business is a very unique skill of successful entrepreneurs.
Success is not dependent on the finance but rather depends on the skill to convert idle
capacity to business. So, finance is not the first important module of the entrepreneurial
success.“ (Altuntas 2014)
The branding of the start-up is crucial as reported by the participants, who claim that the
name of the brand should be easily recognised and to be memorised:
“Branding is really important. If the name of the company is difficulty for the people to
memorize, if it is difficult for people to tell others, because the name of the company is so
difficult so the referrals do not work so well. Even on Google search it will not show up
because the person is putting a different name. And then when you scale up you have to
make sure that the name is suitable for different countries”
According to another interviewee:
"Creating the brand is the most difficult part. Maintain is difficult but not, once you are
there ……. if you create the brand then you got to have clear plan, which way am I going to
go, international or not? And then, selecting the right name and the branding plan should
be there from day 1. But you do not have to spend money on that. But it should be there
from day one. Every person you hire or everything that you do, it should be in the back of
your mind, that you create a trust whether, as I said, it is people, employees or a new
client their trust. The branding, basically, straps the trust you gained from day 1."
23
The SCT espouses the participants’ opinion about branding. Specifically, stage 3, step 5 is
devoted to branding and its contribution to the success of the start-up. Franchising is another
important factor that plays a role in a start-up’s success, according to our participants. This is
also stressed in the SCT (step 7, stage 3). However, there is a slight difference between the
franchising that Altuntas puts forward and the one suggested by some of the interviewees.
Altuntas strongly advises to disclose all the company’s secrets to franchisees if you want
franchising to succeed. By contrast, according to an interviewee, it is enough to give specific
and detailed guidelines to the franchisee, without revealing the company’s secrets.
"I think franchising, obviously, you do not have to share everything. Basically franchising
means, you give them a manual, and how to do business and an operation style. With
franchising you maintain the branding, you maintain control. Basically, franchisees are
execution partners. So, no.”
Another factor of importance regarding effective franchising, according to the SCT, is a
detailed, well-written company manual. A participant was clearly in agreement with this:
"So, as more and more and more business you do, without the manual you would be
nowhere. Because, in many cases, you are not meeting face to face. So, you have to have a
manual… and it has to be extremely transferable. So, to avoid stupid meetings, if you do
not have that then it is chaotic, right?”
However, according to another participant, a detailed company manual is not essential.
Instead, what is needed is a manual with the necessary information:
“Are we process-driven is what you are asking. Because there is a difference between
being process-driven and being bureaucratic. Two different things. That’s not. Being
bureaucratic means everything is documented and you have to write. No, I ‘m not that
kind of person. But am I process-driven? Which means you do things the same way each
time, so that it can be repeated to the same standards and qualities, yes. But they are two
different things. So not all processes are documented…We have the key ones that are
needed and then …”
With respect to the management of a company, a participant suggests that every global
company should be decentralized. However, one could keep a backup operation centralized,
like creating a centre of excellence.
24
"Every global company has to be decentralized... All you can do is to have a decentralized
management but some backup operation can be centralized, to create a centre of
excellence right? … location... on place is finance, one place.. But, most of the
management is decentralized and you have to plan like that otherwise ,... a legacy. If... a
legacy then it is very difficult to fix... right at the beginning and so you are not fixing it
later. It should... because that is how you work..."
The issue of decentralization is also raised by another participant, who states the following:
“Distributed I prefer. And this is personal preference now. I prefer empowering individuals
so that the business can grow. So what you try and find is people who have a vision and
an appetite for a particular aspect of the business and then you give them, empower
them, let them grow the business and they will do more than you.”
A decentralized, or horizontal management, is further supported by the following interviewee:
“What we do advise in the founders is a very early on from the first time we give them the
first 20-50 thousand dollars is what they need to have a mental psychological
detachment for management. What I mean by that is, it is a key that they do not get stuck
up the need to be on individual man in this business always. Now, if you are also maturing
and developing, then great, you will be the CEO of this company in 5 years. If you are not,
it’s not bad to step back a bit and bring in veterans individuals who can manage the
corporate because again, the money cycle the more that you are rising funds the more the
diligence demands is coming to you as a corporate… That management might be better
managing horizontally and then is a cultural fit between what you want to do, what is the
identity of the corporation. My back on at least, I always nominating push for horizontal
management, as a faster more efficient way of delivering results, but at the end you going
to a subject of theoretical thinking of what is the best and what it’s not.”
Decentralization of the company is also very important for the SCT, as it is clearly evident in
stage 3, step 6 Insitutionalization.
Following is the step of Leadership, where the SCT describes what it means to lead one’s own
business and how this can be achieved. In particular, the author of the SCT believes that the
entrepreneur should leave the position of the company’s CEO as soon as it has grown
substantially and act as a leader of the company on a different level than the CEO (e.g. acting
as Business Development Manager trying to further develop the company and making social
contacts that can reinforce that). According to an interviewee who commented on this, it is
not necessary for the entrepreneur to actually lead the company but it depends on that
25
person’s knowledge and abilities related to the field, always having the company’s best
interest in mind.
“It depends. Some businesses you want to keep the guy who has the vision because it
depends on the type of vision it is. Some people have a vision all the way to the end, some
people just have a vision on how, you know, this thing should work and they don’t have an
idea about business. Some people can learn business on the way, some people cannot. So
there’s no one size fits everybody. It would depend on the individual. Once there are
human beings involved, it has to be case by case. “
The 9th and final step (Angel Investment) of the SCT states the reasons and the qualities
required to become an angel investor. In addition, the SCT reports that studying the Angel
Investment system is essential to become a successful BA. Similarly, though not identically,
according to one interviewee’s opinion regarding Angel Investment, becoming a successful BA
requires relevant training.
“It should first get some training on how to be a good “Business Angels”, so there are lots
of term-sheets and lot of things that the “Business Angels” must know to protect his or
her investment. I advice them to take some training and start investing together with
other more experienced Angels. That way he can learn and once he learns how to do it
then he can do it by himself”
Discussion
This section sums up the results presented in the previous section. Regarding,
Wannapreneurship (step 1 of the SCT), the use of idle capacity is described as an important
strategy in creating a successful start-up. The analysis of the interviews shows that idle
capacity is equally endorsed by the participants.
Continuing to Innovation (step 2), the SCT supports that if a product/service is to be
successful, it must be either innovative or at least have an innovative aspect. The vast majority
of our interviewees agree with this point. However, the interviews also express the concern
that complete innovation may be fallible, as the market may not be ready to accept it, and it
might be even preferable to invest in non-innovative products if there is a clear market
demand for them. Thus it appears that the prerequisite of innovation of a product/service for
the success of a start-up is not undisputed, in line with Maxwell, Jeffrey and Lévesque (2011)
who emphasize the importance of a good market fit in a newly introduced product.
26
Regarding Entrepreneurship (step 3 of the SCT), some basic features that the entrepreneur
must pay attention to are the office’s location (in a main street, easily accessible), the name of
the company (one that sounds reliable and has the potential to become international) and the
staff (with the ability to “attract” customers; although the value of the staff is further
described in the next step). According to our analysis, the interviewees believe that it is the
availability of the company to the customers that mostly plays a role and not necessarily the
location. Regarding the name of the company, the participants equally endorsed its value.
Finally, the suitability of the staff is also stressed as a factor greatly contributing to the
company’s success.
In Marketing and Sales (step 4 of the SCT), the SCT stresses how important the marketing
process is, thus rendering the involvement of the entrepreneur necessary. Furthermore,
according to the SCT, an entrepreneur should particularly invest in suitable and quality
marketing products. While interviewees agreed on marketing being an important process in
the success of a start-up, some particular aspects were pointed out such as the feedback
received from the customers through the marketing tools as well as the importance of
marketing the product/service even before the launch of the company itself. In addition, the
competitive sale skills of the relevant staff were underlined. The participants did not mention
anything about the involvement of the entrepreneur in the marketing process, and hence we
cannot draw any conclusions about it. In addition, the participants appreciated the
importance of competitive sales skills on behalf of the staff as well as the value of the team.
Knowledge of the individuals composing the team is another characteristic the participants
value, although not explicitly mentioned in the SCT. Finally, certain characteristics of the
founder, who is also a part of the team, such as passion and dedication to the goals of the
start-up, are valued equally by the SCT and the participants.
Moving to Branding, (5th step) the SCT endorses its high importance as well as the crucial role
of the product’s/service’s quality that contributes to creating and maintaining a successful
brand. On the whole the participants appear to agree on the importance of the product’s
quality and they also report a trade-off between quality and pricing, something which is also
highlighted by the SCT.
Regarding Institutionalization (step 6), the decentralization of the management of a grown
business is described as an important step towards its success, something that the
participants clearly endorsed.
The 7th step of the SCT includes Franchising, which according to the SCT involves - among
others - a detailed company manual and revealing all of the company’s secrets to the
franchisees. The value of such a manual was also stressed by the interviewees, but there was
also concern expressed that not all details need to be revealed in a company’s manual.
27
Leadership (8th step of the SCT) describes how the founder of the start-up can lead his/her
business. One participant commented that, contrary to the SCT, it depends on whether that
person does or does not have the characteristics necessary to become a company leader.
Angel Investment (9th step of the SCT) describes the reasons for becoming an Angel Investor
and the qualities which are required. In addition, studying the angel investment system before
becoming a BA is a prerequisite according to the SCT. Similarly, one participant who
commented on Angel Investment believed that relevant training is required to become a
successful BA.
There were also two factors that were not included in the SCT but emerged as important in
the success of a starting company: The market to which the product/service is introduced
and meeting the deadlines.
Regarding the market, a participant suggests:
“The first and the most important is the proposition to the market. The second is the
market itself. So the customer’s ability to purchase and to buy within that market. So the
market dynamics. So the idea which is the proposition and then the people which is the
market itself that you’re trying to sell into are the first two.”
Regarding the ability to meet strict milestones, according to a participant the pace that
business is conducted nowadays is lightning fast and it can be fairly challenging for a start-up
to keep up with. Therefore, the speed and the efficiency with which a start-up achieves its
milestones are essential to its success:
“And one more...The pace… How quickly or how slowly you do things …Because there’s
some things that if they are not done just in the right time, you miss...”
The importance of meeting the milestones timely is also underlined by the fact that, according
to the same interviewee, entrepreneurs, as opposed to businessmen, heavily rely on a highly
strict and specific timetable which is usually composed of short and medium-term milestones.
In a broader sense, timing seems to be an important factor. As another participant highlights
timing of introducing a new business is crucial for its success:
“Timing is one of the most crucial things. You have to select the right time. If you are too
early, is not good. If you are too late, it is terrible that. Today, timing is counting only in a
matter of a year or two.”
28
Yet another interviewee underlines the role of timing as crucial in the success of a start-up, by
referring to the long time it may take to complete the legal framework of a start-up, which
may prove devastating for the start-up.
“Companies need license to operate in a certain market. These licenses may take more
time than expected and instead of staying there, of going to the market in one and half
year, the company can be ready to go to the market in three years or four years; and this
will mean the company will need more cash, and if there is no more cash from the
investors then the company will be bankrupt. So, there is this legal risk that the
companies should take care of. One for instance is freedom to operate, if the company is
free to operate in a specific market or not. So they should mitigate this risk”.
From the aforementioned statements, it becomes evident that timing is an important factor to
consider when starting an entrepreneurial activity.
Conclusion and future work
The initial analysis of the interview data that was presented herein, shows that the majority of
the steps described by the SCT are also valued by the interviewees. However, there are also
divergent opinions about some aspects of the steps included in the SCT. These are related to
the quality of the product, the disclosing of all of the company’s secrets, the staff’s knowledge
of the business field, the level of innovation of the product/service, the location of the
business’ office and the level of detail in the company’s manual. Finally, the nature of the
market in which a product/service is launched, which appears to contribute to the success of
a start-up, is not mentioned at all in the SCT. Nevertheless, the SCT is the first one, to our
knowledge, that is experience-based and has been formulated based on a successful real-case
example, compared to related models which are traditionally first formulated in theory and
then validated on their efficiency in predicting start-up success. To this end, our work focused
on empirically investigating whether other experienced and successful entrepreneurs share
the same ideas as the SCT regarding the factors that contribute to the success of a start-up.
One limitation that should be mentioned is the rather limited number of interviewees. This
stems from the high quality of the sample on which we chose to carry out this research,
namely BAs and VCs with extensive experience in entrepreneurship and at least 3 exits. In
addition, the limited scope of the questions might have excluded some potentially interesting
opinions of the interviewees, although the chosen format of semi-structured interviews
allowed for other topics to emerge. However, the set of questions was chosen to reflect the
SCT, which is the main scope of this research, and to fit in the tight schedule of the
interviewees.
29
As it has been previously mentioned, this paper reports on ongoing research of validating the
SCT. The analysis of the initial results demonstrates a convergence of the interviewees views
with the SCT. In order to further strengthen the validation of the SCT, future work will be
carried out. It involves additional quantitative analysis using questionnaires distributed to a
larger number of participants bearing the same qualities as the interviewees, namely,
experienced VCs managers and BAs with successful “exits”.
30
References
Acs, Z. J., & Armington, C. (2003). Endogenous growth and entrepreneurial activity in cities.
Washington, DC: Center for Economic Studies, Bureau of the Census.
Altuntas, B. (2014). Off the bus- into a supercar. New York: Balboa Press.
Audretsch, D.B. & Fritsch, M. (1996). Creative destruction: turbulence and economic growth,
in E. Helmstädter & Perlman, M. (eds.), Behavioral Norms, Technological Progress, and
Economic Dynamics: Studies in Schumpeterian Economics (University of Michigan Press, Ann
Arbor), 137-150.
Audretsch, D. B. & Fritsch, M. (2002). Growth regimes over time and space, Regional Studies,
36 (2), 113-124.
Audretsch, D. B. & Keilbach, M. (2004). “Entrepreneurship capital and economic
performance,” Regional Studies, 38 (8), 949–959.
Audretsch, D. P., Thurik, A. R., Verheul, I. & Wennekers, A. R. M. (eds.), (2002).
Entrepreneurship determinants and policy in a European – US comparison. Boston, Dortdecht:
Kluwer Academic Publishers.
Beaver, W. H., McNichols, M., & Rhie, J. W. (2005). Have financial statements become less
informative? Evidence from the ability of financial ratios to predict bankruptcy. Review of
Accounting Studies, 10 (1), 93-122.
Blank, S. (2013). Why the Lean Start-Up changes everything. Harvard Business Review, 63-72.
Retrieved July 5th, 2016 from https://hbr.org/2013/05/why-the-lean-start-up-changeseverything/ar/1
Blank, S. G., & Dorf, B. (2012). The start-up owner's manual: The step-by-step guide for
building a great company. Pescadero, Calif: K & S Ranch, Inc.
Breitzman, A. & Hicks, D. (2008). An analysis of small business patents by industry and firm
size. Small Business Research Summary No.335, SBA,Office of Advocacy, United States
Carayannis, E.G. & Campbell, D.F.J. (2009) “Mode 3” and “Quadruple Helix”: toward a 21st
century fractal innovation ecosystem. International Journal of Technology Management, 46
(3/4), 201–234.
Carayannis, E. G., Popescu, D., Sipp, C., & Stewart, M. D. (2006). Technological learning for
entrepreneurial development (TL4ED) in the knowledge economy (KE): case studies and
lessons learned. Technovation, 26 (4), 419-443.
Caree, M. A. & Thurik, A. R. (2003). The impact of entrepreneurship on economic growth. In
Acs, Z. & Audretsch, D. (Eds.). The International Handbook of Entrepreneurship Research (pp.
437 – 471). U.S.: Springer.
Carter, R. & Van Auken, H. (2006). Small firm bankruptsy. Journal of Small Business
Management, 44 (4), 493–512.
Cooper, A. C., Gimeno Gascón F. J., & Woo, C. Y. (1991). A resource-based prediction of new
venture survival and growth, in Wall, J. & Jauch, L. (Eds.) Academy of Management Best Papers
Proceedings 1991, pp. 68-72. Miami Beach, FL: Academy of Management.
Cross, M. (1981). New Firm Formation and Regional Development, Farnborough: Gower.
Dechow, P. M., Ak, B. K., Sun, E. Y. & Wang, A. Y. (2013). Do financial ratio models help investors
better predict and interpret significant corporate events? Australian Journal of Management,
38 (3), 553-598.
De Clarens, P. (2015). Do financial ratios show true reflection of company performance?
Retrieved on 4 November, 2016 from
31
https://www.researchgate.net/post/Do_financial_ratios_show_true_reflection_of_company_
performance
Eesley, C. E. & Miller, W. F. (2012). Impact: Stanford University's Economic Impact via
Innovation and Entrepreneurship. SSRN. http://dx.doi.org/10.2139/ssrn.2227460
Financial Times (2016). Greece Debt Crisis. Retrieved September 15 th 2016, from
https://www.ft.com/topics/themes/Greece_Debt_Crisis
Freeman, J. & Engel, J. S. (2007). Models of innovation: Start-ups and mature corporations.
California Management Review, 50 (1), 94-119.
Fritsch, M. (1997). New firms and regional employment change, Small Business Economics, 9
(5), 437-448.
Gartner, W. B., Starr, J. A., & Bhat, S. (1998). Predicting new venture survival: An analysis of
“Anatomy of a Start-up”. Cases from INC magazine. Journal of Business Venturing, 14 (2), 215–
232.
Hamel J (1993). Case Study Methods. Qualitative Research Methods. Thousand Oaks, CA:
SAGE.
Hecht, J. (2014). Are Small Businesses Really the Backbone of the Economy? Retrieved on
September 15th, 2016 from http://www.inc.com/jared-hecht/are-small-businesses-really-thebackbone-of-the-economy.html
Huggins R., & Williams, N. (2011). Entrepreneurship and regional competitiveness: The role and
progression of policy. Entrepreneurship and Regional Development, 23 (9-10), 907-932. Linton,
K.O. (2006). Access to capital in China: Competitive conditions for foreign and domestic firms,
Journal of International Commerce and Economics. dx.doi.org/10.2139/ssrn.1031223
Lloyd, P. E., & Mason, C. M. (1983). New firm formation in the UK. SSRC Newsletter, 49, pp. 2324.
Loungrath, P. (2015). Do financial ratios show true reflection of company performance?
Retrieved on 4 November, 2016 from
https://www.researchgate.net/post/Do_financial_ratios_show_true_reflection_of_company_
performance
Lussier, R. N. (1996). A start-up business success versus failure prediction model fro the retail
industry. The Mid-Atlantic Journal of Business, 32 (2),79-92.
Lussier, R. N. & Halabi, C. E. (2010). A three-country comparison of the business success
versus failure prediction model. Journal of Small Business Management, 48 (3), 360–377.
Maxwell, A. L., Jeffrey, S.A. and Lévesque, M. (2011). Business angel early stage decision making.
Journal of Business Venturing, 26 (2), 212-225.
Meszaros, G. (2016). What percentage of businesses fail? Retrieved September 16 th, 2016 from
http://www.successharbor.com/percentage-businesses-fail-09092015/
Nguru, A. (2016). Entrepreneurs and Small Businesses Spur Economic Growth and Create
Jobs. The World Bank, retrieved on September 15th 2016, from
http://www.worldbank.org/en/news/feature/2016/06/20/entrepreneurs-and-smallbusinesses-spur-economic-growth-and-create-jobs
OECD (2013). Summary report of an international workshop organized by the OECD and the
Netherlands Ministry of Economic Affairs. Hague: Netherlands, Ministry of Economic Affairs.
Retrieved on November 22nd 2016, from
https://www.oecd.org/employment/leed/INTERNATIONAL%20ECOSYSTEM%20WORKSHOP_
SUMMARY%20REPORT.pdf
Onwuegbuzie, A. J. & Leech, N. L. (2005). On becoming a pragmatic researcher: The
importance of combining quantitative and qualitative research methodologies. International
Journal of Social Research Methodology, 8 (5), 375-387.
32
Peters, L., Rice, M. & Sundararajan, M. (2004). The Role of Incubators in the Entrepreneurial
Process, The Journal of Technology Transfer, 29 (1), 83 - 91.
Pompe, P.M., & Bilderbeek, J. (2005). The Prediction of Bankruptcy of Small-and MediumSized Industrial Firms, Journal of Business Venturing, 20 (6), 847-868.
Psaltopoulos, D., Stathopoulou, S. & Skuras, D. (2005). The location of markets, perceived
entrepreneurial risk, and start-up capital of micro rural firms. Small Business Economics, 25
(2), 147-158.
Reynolds, P. (1987). New Firms: Societal Contribution versus Potential. Journal of Business
Venturing, 2 (3), 231-246.
Reynolds, P.D. (1999). Creative destruction: source or symptom of economic growth? in Acs,
Z. J., Carlsson, B. & Karlsson, C. (eds.), Entrepreneurship, Small and Medium-Sized Enterprises
and the Macroeconomy (pp. 97-136). UK, Cambridge : Cambridge University Press.
Reynolds, P.D. & Miller, B. (1989). New Firm Survival: Analysis of a Panel’s Fourth Year.
Frontiers of Entrepreneurship Research, in Brockhaus, R. H. Churchill, N. A., Katz, J. A.,
Kerchhoff, B. A., Vesper, K. H. & Wetzel, W. E. ( eds.), pp. 159-172. Wellesley, MA: Babson
College.
Rose, R. C., Kumar, N., & Yen, L. L. (2003). The dynamics of entrepreneurs’ success factors in
influencing venture growth. Journal of Asia Entrepreneurship and Sustainability, 2 (2), 1 – 22.
Rose, R. C., Kumar, N., & Yen, L. L. (2006). Entrepreneurs success factors and escalation of
small and medium-sized enterprises in Malaysia. Journal of Social Sciences, 2 (3), 74- 80.
Rosenberg, N. (2006). Innovation and Economic Growth. Innovation and Growth in Tourism,
43-52, doi: 10.1787/9789264025028-4-en.
Shields, C. M. (2007). Can case studies achieve the ‘Gold Standard?’ Or when methodology
meets politics. Paper presented at the Annual meeting of the American Educational Research
Association, Chicago, USA, April 2007.
Siegel, D., Wessner, C., Binks, M., & Lockett, A. (2003). Policies Promoting Innovation in Small
Firms: Evidence from the U.S. and U.K. Small Business Economics, 20 (2), 121-127. Retrieved
from http://www.jstor.org/stable/40229253
Storey, D.J. (1982). Entrepreneurship and the New Firm. London: Croom Helm.
Small Business Administration (2014). Advocacy: The Voice of Small Business in Government.
Washington, DC: U.S.
The Guardian (2016). Greece's economic crisis goes on, like an odyssey without end. Retrieved
th
September 15 2016 from https://www.theguardian.com/business/2016/jan/04/greeceseconomic-crisis-goes-on-odyssey-without-end
Van Gelder, J. L., De Vries, R. E., Frese, M. & Goutbeek, J. P. (2007). Differences in psychological
strategies of failed and operational business owners in the Fiji Islands. Journal of Small
Business Management, 45 (3), 388-400.
Verbovskiy V.A., Poletaev D.A., & Chayka Y.A. (2014). Basics of successful start-up development
in the field of innovation. Journal of Economics and Social Sciences, 5. [Available at URL:
jess.esrae.ru/8-101]
Vivarelli, M. (1991). The birth of new enterprises. Small Business Economics, 3, 215-23.
Vliamos, S., Halkos, G. E. & Tzeremes, N. (2009). Small business performance: Seeking
efficiency through knowledge based networks. Int. J. Entrepreneurship and Innovation
Management, 9 (1/2), 47–67.
Wall Street Journal (2016). What’s Derailing Greece’s Plan to Sell State Assets? Its Own
Government. Retrieved September 15th, 2016 from http://www.greekcrisis.net/2016/10/whatsderailing-greeces-plan-to-sell.html
33
Weiblen, T. & Chesbrough, H. W. (2015). Engaging with start-ups to enhance corporate
innovation. California Management Review, 57 (2), 66-90.
Van Stel, A., M. Carree and R. Thurik, 2005, The Effect of Entrepreneurial Activity on National
Economic Growth, Small Business Economics, 24(3), 311–321.
Wennekers, A. R. M., vanStel, A. J., Thurik, A. R. & Reynolds, P. D. (2005). Nascent
entrepreneurship and the level of economic development. Small Business Economics, 24 (3),
293–309.
Westhead, P. Wright, M. & Ucbasaran, D. (2001). The internationalization of new and small
firms: A resource based view. Journal of Business Venturing, 16 (4), 333–358.
Williams, N., Vorley, T., & Ketikidis, P. H. (2013). Economic resilience and entrepreneurship: A
case study of the Thessaloniki City Region, Local Economy Journal, 1-17.
34
South East European Research Centre
24, Proxenou Koromila Street
54622, Thessaloniki, Greece
Tel: +30 2310 253478
Fax: +30 2310 234205
contact@seerc.org
http://www.seerc.org